The Agenda – December

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Executive Remuneration

AFR Salary Survey

John Egan has been quoted in an article in the Australian Financial Review (AFR) on Executive remuneration, which provides comment on findings from the AFR Salary Survey for 2015. In particular, the article highlights the prevalence of golden handshakes, the use of total shareholder return (TSR) as a performance hurdle as well as the increasing number of top performing female CEOs.

You can read the article here.

Bank shareholders protest remuneration

Westpac has narrowly avoided a strike at its AGM on 11 December after shareholders protested performance targets which resulted in a $10.7 million bonuses payment to Executives.

16.5% of votes were cast against the remuneration report, whereas only 2.75% were against the report last year.

Proxy advisor Ownership Matters had recommended that shareholders vote against the remuneration report after $354 million in software was booked below the cash profit line used as the base for the incentive program.

It stated that if this amount, which was written off under a new accounting policy, had not been excluded then the cash earnings-per-share hurdle applying to half the long-term incentives due to vest at the end of 2015 would not have been met.

Westpac Chairman Lindsay Maxsted said that this was a flawed argument.

“It is not as though there is some massive amount that has been pulled out of the cash earnings and just pushed to one side so that people can get a bonus” Mr Maxsted told the AFR.

“There’s no hunt here of management distorting results to get bonuses. The Board signs off on cash earning adjustments and we do that with our eyes open in line with accounting standards”.

This circumstance highlights the criticality of using appropriate accounting standards and applying them consistently and emphatically.

ANZ also received a significant vote against its remuneration report, which Chief Executive Shane Elliott partly attributed to what happened to “another bank”, although he did not refer to Westpac specifically.

There was a 15.48% vote against the report as shareholders protested Executive pay, including outgoing CEO Mike Smith’s total remuneration of $10.8 million.

Board Effectiveness

Professional directors risk stifling growth

A recent report has found that a lack of genuine diversity on Boards, as well as risk-averse “career Directors” may be inhibiting growth and competitiveness.

The study, conducted by Blenheim Partners’ Gregory Robinson and Dr Brett Wright, and Macquarie University Graduate School of Management’s Professor Charles Areni, considered the views of more than 80 Australian business leaders, Chairman, Directors and CEOs.

The main factors identified as impacting negatively on companies’ “risk appetite” included:

  • Excessive scrutiny from investors, proxy advisors and the media;
  • A pre-occupation with compliance and personal risk
  • The impact of failure on personal reputation

There were also concerns about the lack of diversity of thought and contribution. A number of participants stated that the traditional Board competencies of accounting, legal, compliance and risk, were somewhat over-represented on company Boards. Others stated that there were alternative means for Boards to access these skills (for example, outsourcing).

In terms of competencies that Boards need more of, participants identified international experience and Executive experience as well as social media, technology and digital skills.

You can read more here.

Superannuation

Should retirees sell their homes to fund retirement?

A Productivity Commission report suggests that retirees should sell their homes instead of relying on the pension.

The report found that median superannuation balances for those aged 55-64 years in 2011-12 were just over $100 000, which is less than 15% per cent of their total net wealth. In comparison, the family home accounted for around half of household wealth, though it is not typically used to fund retirement.

Commissioner Karen Chester says it is primarily the reluctance to tap into this wealth that is causing people to reduce their consumption and standard of living.

“There’s a material gap between the value of the family home and what’s required to fund aged care,” Ms Chester has said.

Yet retirees have also been cautioned to think twice before drawing on home equity, Amelie Christie from the combined Pensioners and Superannuants Association (CPSA) notes that the reverse mortgage market in Australia is very small and, in addition, these products are not necessarily a good idea for older people, particularly if they have a life event they haven’t anticipated.

Ms Christie stated that, while CPSA welcomes the research, it urges the Commission to “let go of its obsession with older Australians’ family home”.

Employees deem performance appraisal process ineffective

US research released by OfficeTeam has found that 25% of employees do not believe that performance reviews actually improve their performance.

This contrasts with 89% of HR managers who believe that the performance appraisal processes are at least somewhat effective.

Robert Hosking, Executive Director of OfficeTeam, stated that companies should be determining the format and frequency of assessments based on what works best for employees. Mr Hosking stated that it is important to check in regularly with staff in order to keep everyone on the same page.

A number of companies are already embracing systems that provide employees with regular feedback, and some have abandoned the formal review process altogether. Examples include National Australia Bank, Amazon.com, Accenture and Seek.

Gender Equality in the Workplace

Business leaders believe it will be over a decade before gender parity is achieved in the workplace, a survey has found.

Global research published by consulting firm ManPowerGroup revealed that 94% of business leaders in the Asia Pacific believe that it will be another 13 years before women have the same opportunities as men, in particular the opportunity to advance into leadership positions, while American and European leaders believe it will take 17 and 19 years respectively.

Participants believe that progress can be advanced if companies create a gender neutral culture, embrace flexibility in the workplace and make a commitment to support women into leadership.

ManPowerGroup CEO Jonas Prising stated that getting women into leadership is more than just an ethical imperative.

“It makes good business sense, achieves diversity of thought and better decision making” Mr Prising said.

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